DERs in 2016: What experts expect for a booming sector

Tax credit extensions can be a big opportunity for utilities and DER developers in the upcoming year

st before the new year, the wind and solar industries won some hard-fought extensions of vital federal tax credits in a omnibus spending bill brokered in Congress. But that’s just the beginning of a big 2016 for the renewable energy industry, according to sector insiders.

Utilities will also incorporate DERs into planning processes, transforming formerly hostile regulatory proceedings into collaborative, solution-oriented rate design conversations. The result will be new levels of grid reliability and resiliency, making it easier and cheaper than expected to meet Clean Power Plan goals.

“Regulators are realizing it is no longer business as usual and the status quo isn’t going to work going forward,” said Marlene Motyka, Deloitte Center for Energy Solutions alternative energy leader.

Regulators need to figure out how to work with utilities and the market to provide customers with “the affordable, reliable, clean electricity they want. It is the over-riding trend that cannot be ignored.”

Tax credit extensions

The federal investment tax credit (ITC) extension will add an additional 25 GW of solar installed capacity by 2020, a 54% increase over what would have been deployed without the extension, according to GTM Research. The production tax credit (PTC) extension will result in as much as 19 GW of additional wind, Bloomberg New Energy Finance (BNEF) estimates.

The two industries will bring $73 billion to the U.S. economy’s energy sector and, by the time the tax credits expire, “solar and wind will be the cheapest forms of new electricity in many states across the U.S,” according to BNEF.

In the coming year, the ITC extension will allow solar developers who had been gearing up to beat the December 31, 2016, deadline in the previous tax credit to take a breath and start thinking long term.

Next year will, however, be the last year wind developers can qualify for the full $0.023/kWh PTC before it drops 20% in 2017. Since the PTC drops a further 20% in 2018, 20% more in 2019, and terminates in 20202, analysts expect developers to rush to meet minimum “in-construction” terms for projects they can complete each year. That means wind developers will have to run the familiar race to meet tax credit requirements annually, but with more predictability for the next few years.